By Ben Levisohn

Credit Suisse’s analysts note that they’d been “cautious” on the stock for the last two and a half year due to production declines, cost inflation, fuel imports and its capital spending, which caused its earnings and balance sheet to deteriorate and the stock to plummet. It’s dropped 52% during that period.

So why the upgrade? Chalk it up to less government intervention. The analysts write:

A big step was taken yesterday: PBR increased diesel prices just ahead of a Central Bank meeting, precisely at time when inflation is at the forefront of politicians’ minds. This could be the beginning of a more benign Government attitude, trying to restore business confidence. Other anecdotal evidence can be found in infrastructure, utilities (potential fund to handle tariff review) and banks (Basel III measures and change in provisioning taxation rules).

Meanwhile, Petrobras has been taking steps to improve its business. They range from cutting costs and selling some businesses to better production numbers and management confidence. And not a lot has to go right for the stock to gain, the analysts say. They write:

We do not need (and we do not have yet) a structural change in the business; just the increased likelihood of improvement can warrant a change in relative valuations over the next six months. That, despite not being entirely fundamentals driven, is enough for an Outperform, and we are confident it is the right call now. It’s time.

Shares of Petrobras have jumped 5.5% to 17.59% today, and have helped lift Brazilian stocks generally. The iShares MSCI Brazil Capped Index (EWZ) exchange-traded fund has gained 1.4% to $57.24, while Vale (VALE) has climbed 1.4% to $19.20 and Banco Bradesco (BBD) is up 1.3% at $18.69.

About Emerging Markets Daily

Emerging markets have been synonymous with growth, but the outlook for individual nations is constantly changing. Countries from Brazil and Russia to Turkey face challenges including infrastructure bottlenecks, credit issues and political shifts. Barrons.com’s Emerging Markets Daily blog analyzes news, data and research out of emerging markets beyond Asia to help readers navigate the investment landscape.

Barron’s veteran Dimitra DeFotis has been blogging about emerging market investing since traveling to India and Turkey. Based in New York, she previously wrote for Barron’s about U.S. equity investing, including cover stories and roundtables on energy themes. Dimitra was among the first digital journalists at the Chicago Tribune and started her career as a police reporter at the Daily Herald in the Chicago suburbs. Dimitra holds degrees from the University of Illinois and Columbia University, where she was a Knight-Bagehot Fellow in the business and journalism schools. She studies multiple languages and photography.